Since bank deregulation in the early 1980's, banks have adjusted their strategy to better compete on a national level. To grow and ward off acquisition in a consolidating industry, banks have steadily introduced fee increases as well as new types of fees resulting in an overly complicated and punitive banking system that generates more profits from fees than from the traditional business of lending.
This added complexity regarding fees is not unique to banking. For example, other financial institutions, such as those that offer credit cards, also have adopted a more aggressive fee strategy. Although this strategy is effective at increasing revenues, it disproportionally impacts certain populations of the consumer base. In particular, the large increases in bank revenues are largely funded by the fees charged to uneducated and inexperienced banking customers, as it is these customers who do not possess the knowledge and skills needed to avoid these fees.
Fees can largely be avoided by consumers who have knowledge of basic personal finance. Basic personal finance includes three skills: budgeting, cash flow management, and accounting. Budgeting involves comparing estimated expenses against estimated income. Cash flow management involves coordinating the timing of debits and credits so that one's cash balance is never negative and so that transaction costs are minimized. Accounting involves retrospectively evaluating expenses and income and comparing these against a budget to detect errors and identify opportunities for improved spending behavior.
Fees can be further reduced by learning additional skills. As financial and lending institutions offer a wider variety of products, often with more terms and conditions of use, the ability for a consumer to understand, evaluate, and compare these products is becoming more important. Consumers who possess the skill of appropriate product selection can most effectively use banks while incurring the fewest possible fees.
In addition, a person's credit score is becoming ever more important and can play a significant role in that person's ability to purchase certain items or live a desired lifestyle. Persons unfamiliar with the existence or importance of their credit score, and/or the factors which affect their credit score, can experience significant hardships and costs (often in the form of higher interest rates on debt) than persons who understand and take steps to effectively manage their credit score.
Also, in our modem world, many lenders are available to lend money to consumers. Such lenders include, for example, banks, student loan financing companies, check cashing companies, credit card companies, and pawn shops. Certain lenders provide more attractive terms than others, but persons unfamiliar with lender options can incur significantly more cost in borrowing money than persons familiar with lender options. Furthermore, persons with low credit scores will likely have fewer lenders to select from, and will accordingly pay more to borrow money than persons with higher credit scores. Additionally, many lenders impose fees which sophisticated borrowers can easily avoid, but which less sophisticated borrowers often find themselves trapped into paying.
Accordingly, a person having some sophistication as to banking, borrowing, purchasing, and investing can reap significant financial and non-financial rewards. However, it can be difficult for a child to learn such sophistication, particularly if that child's parents or guardian are not themselves empowered with such knowledge. It can also be difficult for an adult to learn such sophistication, as it is likely that such an adult is already burdened by bad financial habits and/or a low credit score. Additionally, conventional systems are often not easily used, accessible, or effective in providing such knowledge to children and/or adults.